Restricted Reports and Estate Planning

[BRCJR]

I still contend unless it is written IRS policy disallowing the Restricted Appraisal it can be done.

Is it the best option, probably not.

 

[Don Jones]

Ever know a review Appraiser to be wrong?

I am not saying I would subscribe to presenting a Restricted Appraisal but, in my research, I find no documentation stating a Restricted Appraisal is disallowed.

Someone please provide a link to such.

Is it a myth handed down like so many other "rules" Appraisers speak of?

I have never been partial to arguing with a fence post, nor an IRS review appraiser. Regardless if it is written down somewhere matters not if the IRS review appraiser does not accept them.

 

[BRCJR]

I have never been partial to arguing with a fence post, nor an IRS review appraiser. Regardless if it is written down somewhere matters not if the IRS review appraiser does not accept them.

I work for a heavily regulated institution and know that ALL enforceable policies and laws MUST be in writing and approved at the IRS, not some review Appraisers‘ decision or opinion.
It is called supported verifiable documented policy and/or law.

I still await a link to IRS policy regarding the issue but, no one has provided such. Can you do so?

I just don’t subscribe to hearsay and myths.

 

[Deleted member 126639]

I would argue that many of the responses saying "no" are coming from those who still believe a commercial appraisal report should be 100+ pages of irrelevant data with no analysis demonstrative of logic, no conversations with market participants, etc. It's been 15 years since Scope of Work requirements changed, but most put in the same generic nonsense and think of reports in the deprecated terminology of self-contained, summary, and restricted. A restricted report can be what was once called a "letter of value", and that probably would not suffice for the IRS, but if you stick to a direct cap (and you should as every judge knows DCFs are BS) you could credibly appraise pretty much any common property type in 15 pages or less.

I would recommend purchasing the Scope of Work, 3rd Edition published by the Appraisal Institute that very clearly explains how a thorough, assignment specific scope of work (which is required for restricted appraisal reports) allows you to write a brief, credible report. They of course include examples.

The only real benefit of choose Appraisal Report or Restricted Appraisal Report is the latter can have only one intended user. For those who use boilerplate Scope of Work text, it might be hard to write a long scope of work, the length of which is inversely proportionate to the level of detail you actually report.

But as I've transitioned to reviewing for several financial institutions, some quite large, I can tell you the IRS will be less tolerant of the nonsense most appraisers include in their reports. Banks want to get the deal done, and rejecting a report or dealing with an incompetent appraiser who requires 5 revision letters can put you as the reviewer in hot water. The IRS doesn't need to read 10 pages of regional statistics that aren't analyzed, neighborhood analyses that talk about Indians, 3 page zoning analyses or descriptions of the improvements that just make it clear the appraiser is not an architect or builder, but an idiot.

Freddie Mac disallows reports longer than 50 pages, as do all European fiduciaries. For the IRS, I would imagine the entire front end can be summarized in 2-3 pages in the highest and best use, with the remaining 10 pages for whatever approaches you use. IRS reviewers aren't idiots. They know that most appraisers just slap information together and perform dubious analyses. A well-written report that prioritizes brevity and analysis over data dumps will be recognized as more credible than pretty much all self-contained reports put out by the nationals. Believe me, EVERYONE hates long reports, and they know why appraisers do it - reviewers just don't have the time to read it. In reality, the trends towards long, ridiculous reports was done in the 1990s when banks barely had internal reviewers who were appraisers. It's intentional obfuscation by making the reader's eyes bleed until they give up.

30-year mortgage rates for residential property was reported to be 4.16% today, 100 basis points higher than it was 3 months ago. The more accurate Optimal Blue 30-Year Conforming Index reports 4.5%. They will undoubtedly go much higher, but a 33% increase is significant. The IRS sure knows it, but barely any appraisers understand financing, and omitting just that will raise red flags. If you're not incorporating at least a summary of trends like these, rethink everything. USPAP requires that during periods of market instability, you must perform a fundamental market analysis where you forecast future demand. You don't have to fully report it, but the housing market has never been this unstable and this is the sharpest percentage increase in rates since 1980.

 

[BRCJR]

I am amazed at the number of Appraisers that think a Restricted Appraisal can have only one Intended User. Get out your USPAP and see for yourself that is a myth.

 

[BRCJR]

I would argue that many of the responses saying "no" are coming from those who still believe a commercial appraisal report should be 100+ pages of irrelevant data with no analysis demonstrative of logic, no conversations with market participants, etc. It's been 15 years since Scope of Work requirements changed, but most put in the same generic nonsense and think of reports in the deprecated terminology of self-contained, summary, and restricted. A restricted report can be what was once called a "letter of value", and that probably would not suffice for the IRS, but if you stick to a direct cap (and you should as every judge knows DCFs are BS) you could credibly appraise pretty much any common property type in 15 pages or less.

I would recommend purchasing the Scope of Work, 3rd Edition published by the Appraisal Institute that very clearly explains how a thorough, assignment specific scope of work (which is required for restricted appraisal reports) allows you to write a brief, credible report. They of course include examples.

The only real benefit of choose Appraisal Report or Restricted Appraisal Report is the latter can have only one intended user. For those who use boilerplate Scope of Work text, it might be hard to write a long scope of work, the length of which is inversely proportionate to the level of detail you actually report.

But as I've transitioned to reviewing for several financial institutions, some quite large, I can tell you the IRS will be less tolerant of the nonsense most appraisers include in their reports. Banks want to get the deal done, and rejecting a report or dealing with an incompetent appraiser who requires 5 revision letters can put you as the reviewer in hot water. The IRS doesn't need to read 10 pages of regional statistics that aren't analyzed, neighborhood analyses that talk about Indians, 3 page zoning analyses or descriptions of the improvements that just make it clear the appraiser is not an architect or builder, but an idiot.

Freddie Mac disallows reports longer than 50 pages, as do all European fiduciaries. For the IRS, I would imagine the entire front end can be summarized in 2-3 pages in the highest and best use, with the remaining 10 pages for whatever approaches you use. IRS reviewers aren't idiots. They know that most appraisers just slap information together and perform dubious analyses. A well-written report that prioritizes brevity and analysis over data dumps will be recognized as more credible than pretty much all self-contained reports put out by the nationals. Believe me, EVERYONE hates long reports, and they know why appraisers do it - reviewers just don't have the time to read it. In reality, the trends towards long, ridiculous reports was done in the 1990s when banks barely had internal reviewers who were appraisers. It's intentional obfuscation by making the reader's eyes bleed until they give up.

30-year mortgage rates for residential property was reported to be 4.16% today, 100 basis points higher than it was 3 months ago. The more accurate Optimal Blue 30-Year Conforming Index reports 4.5%. They will undoubtedly go much higher, but a 33% increase is significant. The IRS sure knows it, but barely any appraisers understand financing, and omitting just that will raise red flags. If you're not incorporating at least a summary of trends like these, rethink everything. USPAP requires that during periods of market instability, you must perform a fundamental market analysis where you forecast future demand. You don't have to fully report it, but the housing market has never been this unstable and this is the sharpest percentage increase in rates since 1980.

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Where do you find Freddie Mac disallows more than 50 page reports? Fact or fiction? I read Freddie Mac appraisal guidelines start to finish no less than twice a year and do not recall reading such a “rule or guideline“.

 

[BRCJR]

I have never been partial to arguing with a fence post, nor an IRS review appraiser. Regardless if it is written down somewhere matters not if the IRS review appraiser does not accept them.

I think a vast difference exists between arguing and educating. I don’t want to be your fence post but, an IRS review Appraiser does not get to set law or IRS policy in an arbitrary manner. There is a process and one review Appraiser vs another is not how it should work. Problem is way too many Appraisers lay down and are afraid to stand up for what is right (or possibly don’t know themselves). I still await an IRS appraisal guideline link supporting the review Appraisers position.

 

[Deleted member 126639]

I am amazed at the number of Appraisers that think a Restricted Appraisal can have only one Intended User. Get out your USPAP and see for yourself that is a myth.

When the Scope of Work became the defining standard of the appraisal content, originally this was the case. You are correct however, that other intended users can be named. Reading the latest 2020-2021 Standards Rule 2-2(b), the only significant difference between an appraisal report and restricted appraisal report is the latter is restricted to only the intended users identified in the report. I.e., you can't include "and/or assigns" or terminology that allows the appraisal to be used effectively by anyone the bank sells a loan to. In reality, outside of preparing an appraisal for a bank, the vast majority of reports probably can be identified as restricted appraisal reports. Certainly, in this case, the client and the IRS should be the only intended users. This is important as the latter is staffed by reviewers who understand appraisal BS (are you risking doing easement appraisals for low fees?) and your reporting should absolutely be brief, well-supported, and logical.

All that said, I'm more amazed at how I never have seen anything but boiler plate Scope of Work sections of a report. This entire discussion is based on the false belief that there is some kind of complex minimum standard of reporting. This is not the case at all. You define in the Scope of Work what you report and the level of detail in how relevant conclusions are supported. This is of course in addition to the minimum (and they are minimal) required reporting elements.

Most reports I see today are the exact opposite of what USPAP intends. Instead of writing a paragraph describing relevant neighborhood characteristics that affect the value of the subject property, I see pages upon pages of nonsense and no conclusion whatsoever. Virtually no one even provides a basic conclusion of the neighborhood life cycle stage, the entire reason the analytical concept exists.

You got me there, but I write a thorough Scope of Work that is clearly specific to the stated intended users, and exclaim other users may require a more exhaustive report.

Whatever value you provide to anyone when acting as a licensed appraiser must have a complete work file with all required supporting data. It's much easier to just print neighborhood nonsense from ESRI to PDF and write a paragraph than include pages of such nonsense in your actual report. After the 2010 Census, ESRI year after year projected modest growth forecasts of population and households in New York City. Then the 2020 census is finally completed and we find out the population increased by nearly 1 million people.

Costar data is equally nonsensical. The most accurate information regarding real estate related economics and market trends, like those I cited above, are never used by appraisers. This chart alone tells a huge story that no one reports. When yield rates on all securities increase significantly over a period of 3 months, and the spread between short- and long-term securities because much smaller, you are seeing the beginning of exactly what happened in 1980. The yield rate on ALL securities was jacked up to rates unfathomable today in a year. This may not require much commentary today, but in a year? We'll see how many appraisers actually understand monetary policy and how it affects real estate values. And I guarantee you that if rates truly spike, no one will ever do cash equivalency adjustments.

There are far worse things you should be amazed about than that oversight.

 

[Terrel L. Shields]

I have a brief narrative format that is less than a full report but a bit more than a restricted report that I often use for estate purposes. I title it a restricted report but in reality, its more than that.

I once had an instructor teach that if you did more than the minimum it was neither a restricted nor a summary report???

I am amazed at the number of Appraisers that think a Restricted Appraisal can have only one Intended User.

Which begs the question. Why do we have a "restricted" label? Was there some benefit to not simply and finally ditching the 3 option stupidity that was created in the mid-1994 changes to USPAP that riled us (at least all us old geezers who were there) all up? Only to have TAF slowly and surely one drip at a time unravel all the dumb things they created in the 1990s...

So what next? Do we reinstate "departure" and eliminate the Scope of Work rule?...I'd hate to bet against it

The three reporting options - self-contained (as an instructor 20 years ago said, "I don't know what that means. I have a summary report that is 1,200 pages."

an IRS review Appraiser does not get to set law or IRS policy in an arbitrary manner.

I don't want me or my client to be the guinea pig who gets to take this to tax court and 'perfect' the law.

 

[Deleted member 126639]

Where do you find Freddie Mac disallows more than 50 page reports? Fact or fiction? I read Freddie Mac appraisal guidelines start to finish no less than twice a year and do not recall reading such a “rule or guideline“.

Dude, Freddie Mac is on the forefront of putting an end to appraiser nonsensical writing of appraisal reports the length of novels. The entire residential real estate market is effectively controlled by the government (and has been since the Great Depression), and they require brevity as every appraisal report is added as a datapoint in the overall economic planning of how residential real estate policy is formed. You can get in touch with the Freddie Mac Chief Appraiser easily. He's happy to discuss all manner of ways to make appraisals easier to understand. Marty Skolnick - Martin_Skolnik@freddiemac.com.

While the 50-page limit was inherited from Europe, an important difference between USPAP and all other valuation standards is that the inclusion of irrelevant information, data, or conclusions is itself misleading.

I don't really appraise anything but small multi-family properties for local lenders as the fees are high. But I review appraisals where Freddie Mac is the intended user all the time, and they comply mostly by doing stupid nonsense like putting front end components of their report template in the Addenda.

Across the board NO ONE wants to read lengthy appraisal reports unless absolutely necessary, which is probably under 3-5% of the commercial reports prepared. Appraisers are their worst enemy. You should be thinking to yourself "Wow, I don't have to include 50 pages of nonsense I know no one reads? That means I can get reports done faster with fewer errors and increase my hourly wage!".

Until the original FIRREA crowd that got into the business circa 1991 retires or dies, there will always be the mindset that anything less than a Self-Contained Complete Appraisal Report is not credible nor what clients want.

EDIT: WTF? Section 60.11 https://mf.freddiemac.com/docs/chapters/mf_guide_ch_60.pdf

"Appraisals submitted to Freddie Mac for loan origination in the Small Balance Loan (SBL) program must be 50 pages or less. Addenda to these Appraisals are not included in the 50-page count. Effective with underwriting packages delivered to Freddie Mac on or after August 1, 2019, appraisals submitted to Freddie Mac for loan origination in the Targeted Affordable Housing Express (TAHX) program and with an appraisal effective date of value on or after August 1, 2019 must be 75 pages or less. Addenda to these appraisal reports are not included in the 75-page count. "

Clearly the trend is for page limits. Baby steps.